Q: A company signs a $$50,000, 6-month note payable at 8% annual interest. What is the total interest expense accrued at the end of 6 months? Use the formula $$\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}$.

$$50,000 \times 0.08 \times \frac{6}{12} = 2,000$$

Question 1

A company has accounts payable of $$120,000 at the beginning of the year and 150$$,000 at the end of the year. Purchases on account during the year total $$600,000. What is the accounts payable turnover ratio for the year? Use the formula $$	ext{Accounts Payable Turnover} = \frac{	ext{Purchases on Account}}{	ext{Average Accounts Payable}}$.

Accepted Answer

$$\frac{600,000}{135,000} = 4.44$$

Question 2

A company signs a $$50,000, 6-month note payable at 8% annual interest. What is the total interest expense accrued at the end of 6 months? Use the formula $$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes 	ext{Time}$.

Accepted Answer

$$50,000 	imes 0.08 	imes \frac{6}{12} = 2,000$$

Question 3

When interest expense is accrued on a note payable, which accounts are affected and how?

Accepted Answer

Interest Expense is debited; Interest Payable is credited.

Question 4

A company receives $10,000 in advance for services to be performed next month. What is the correct adjusting journal entry at month-end after the services are performed?

Accepted Answer

Debit Unearned Revenue $$10,000; Credit Service Revenue 10$$,000.

Question 5

A company makes a sale of $1,000 subject to 7% sales tax. What is the correct journal entry for recording the sale?

Accepted Answer

Debit Cash $$1,070; Credit Sales Revenue 1$$,000; Credit Sales Tax Payable $70.

Question 6

A bond is issued at par value. Which accounts are affected and what is the journal entry?

Accepted Answer

Debit Cash; Credit Bonds Payable.

Question 7

Which of the following is NOT an advantage of a corporation?

Accepted Answer

Unlimited liability for shareholders

Question 8

Which of the following is included in Total Paid-In Capital?

Accepted Answer

Common Stock, Preferred Stock, and Additional Paid-In Capital

Question 9

A company issues 1,000 shares of $$1 par value common stock for 15 $$per share. What is the correct journal entry?

Accepted Answer

Debit Cash $$15,000; Credit Common Stock 1$$,000; Credit Additional Paid-In Capital $14,000.

Question 10

A company buys back 500 shares of its own stock at $20 per share. How does this affect stockholders’ equity?

Accepted Answer

Stockholders’ equity decreases by $10,000 (cost of treasury stock).

Question 11

A company sells treasury stock above its cost. Which account is credited for the excess over cost?

Accepted Answer

Additional Paid-In Capital

Question 12

On a partial stockholders’ equity balance sheet, what is the difference between shares issued and shares outstanding?

Accepted Answer

Shares outstanding = Shares issued minus Treasury shares

Question 13

A company has net income of $$120,000 and 40,000 shares of common stock outstanding. What is the Earnings per Share (EPS)? Use the formula $$	ext{EPS} = \frac{	ext{Net Income}}{	ext{Shares Outstanding}}$.

Accepted Answer

$$\frac{120,000}{40,000} = 3.00$$

Question 14

Why is Earnings per Share (EPS) an important measure for investors?

Accepted Answer

It helps investors evaluate a company’s operating performance relative to the number of shares outstanding.

Question 15

What is the primary purpose of the statement of cash flows?

Accepted Answer

To provide information about a company’s cash receipts and cash payments during a period.

Question 16

Which type of activity on the statement of cash flows is most important for analyzing the long-term survival of a company?

Accepted Answer

Operating activities

Question 17

Classify the following transaction: A company pays cash dividends to its shareholders.

Accepted Answer

Financing activity

Question 18

On the statement of cash flows, how are gains and losses from the sale of assets treated under the indirect method?

Accepted Answer

Gains are deducted; losses are added to net income.

Question 19

Which item is listed at the very bottom of the statement of cash flows, as a note or disclosure?

Accepted Answer

Non-cash investing and financing activities

Current Liabilities, Stockholders’ Equity, and Statement of Cash Flows: Study Notes

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